City Union Bank (CUB) has decided to recall the loan of ₹100 crore given to SpiceJet and has marked the account as a Special Mention Account (SMA) 1 because it has seen incipient stress. SpiceJet was given multiple notices to either pay back ₹100-crore bank overdraft or come up with a revival plan. Since the debt-strapped low-cost carrier did neither, the bank has started provisioning for the same.

A company source said that earlier this month, SpiceJet was declared an SMA-1 for an overdraft it had taken in 2014-15. A company is marked as an SMA-0 for Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress. If the principal or interest payment is overdue between 31 and 60 days, it is marked as SMA-1.

A banking source confirmed the same, while adding that “SpiceJet had paid interest of ₹1 crore every month, on the overdraft facility it had taken up until January 2022. However, we have not seen regular operations in that account, and the airline has been making losses for over multiple quarters.”

In the Q3 of FY22, for the first time in five quarters, SpiceJet surprised the market with a net profit of ₹23.3 crore standalone compared with a loss of ₹57 crore same period last year. 

“We asked them to give us a revival plan, however, we did not receive an appropriate response from them. We do not wish to continue our relationship with the airline; hence, we asked them to clear the overdraft. Since that too did not happen, we marked them an SMA-0. Since the company did not pay the money post 60 days too, the account has been declared as an SMA-1.”

FD security

In response to BusinessLine’s query, a SpiceJet spokesperson said, “The ₹100-crore facility is fully secured and backed by a ₹100-crore fixed deposit. There has never been a default in service of this facility.”

However, a CUB spokesperson said that the bank had clarified its stand on the SpiceJet matter during the Q3 financial results (earnings) con call. “We are waiting for their response,” the person added.

As per the earnings call transcript of CUB, “It is reported in the media that there are court cases going on asking for liquidation of SpiceJet. As the account operations were not satisfactory, we have decided to recall the advances given to SpiceJet. If SpiceJet does not close the account, it may have to be classified as NPA and the provisions need to be made till the final judgement on ED is received.”

A Madras High Court had passed an order to liquidate SpiceJet’s assets in the Credit Suisse matter, and given it an opportunity to appeal. BusinessLine has learned through its sources that both the airline and bank are evaluating an out-of-court settlement. 

Provisioning made

“We have provided ₹30 crore in this quarter for that purpose. As the provision requirement for Covid-related stress is by and large over, we have earmarked about ₹10-crore provisions from the earlier-made Covid provisions which could be utilised for this, making total provision available for this as ₹40 crore. We should be able to make adequate provisions if needed in the subsequent two-three quarters. Meanwhile, SpiceJet had paid interest and dues on CC till January 31, 2022.”

CUB added that the loan was sanctioned in FY2014-15 based on the long-standing customer relationship with then promoter Sun TV group, which was collaterally secured by a fixed deposit in the name of the promoter. In March 2015, the ED provisionally attached the fixed deposits. The trial court ruled against the ED attachment, but the ED preferred to appeal in the High Court.